Suppliers see sharp rise in profit warnings

The number of profit warnings issued by high-profile IT suppliers is likely to increase over the next few months as the economic...

The number of profit warnings issued by high-profile IT suppliers is likely to increase over the next few months as the economic slowdown hits user demand and over-optimistic growth estimates are scaled down.

Statistics published by accountancy firm Ernst & Young show that over the last quarter the total number of profit warnings issued by UK firms rose dramatically to 136, up 77% on the fourth quarter of 2000. Topping the list was the software and computer services sector, which generated the highest number of warnings for the fifth quarter in a row.

Warnings issued by the software and computer services sector accounted for 14% of the total, and were the culmination of a number of factors, the report said.

Companies reviewed said they were facing an increasingly tough environment and that ongoing fears about a recession continued to depress spending. User investment in Internet technologies has not yet produced convincing revenue streams and consequently suppliers are suffering from a reduction in demand.

Pressure is also being felt in the telecoms sector, where companies are facing a lack of user interest in high-capacity data services. The financial strain of investing in third-generation mobile technology, which is unlikely to yield returns for a number of years, is also taking its toll.

John Harley, partner and specialist in the technology, media and telecoms sector in Ernst & Young's corporate finance division, said the companies that would survive the slowdown were likely to be those that provide a product or service that improves productivity and enables customers to save money, such as e-enablement or outsourcing.

Hazel Ward
[email protected]

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